M/s. Rajeev Singhal, Roorkee V. ITO, Roorkee

ITA 1344/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3939 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 19-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 08-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Gift
• Section: 44AD; 40A(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI B.C. MEENA ITA NO. 1344/DEL/09 ASSTT. YR: 2005-06 M/S RAJEEV SINGHAL VS. INCOME-TAX OFFICER, 243 RAM NAGAR, WARD-2, ROORKEE. GALI NO. 5, ROORKEE. PAN/GIR NO. R-100/FIRM. (APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI K. SAMPATH ADV. RESPONDENT BY : MS. Y. KAKKAR, CIT DR O R D E R PER R.P. TOLANI, J.M : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DATED 22-01-2009 RELATING TO A.Y. 2005-06. 2. FOLLOWING GROUNDS ARE RAISED: 1. THAT THE ORDER IS AGAINST LAW AND FACTS OF THE CASE. WRITTEN SUBMISSIONS FILED BEFORE THE LEARNED CIT(A) WERE NOT CONSIDERED NOR ADJUDICATED. 2. THAT THE AO ERRED AND ACTED ARBITRARILY TO HAVE ADDED OUT OF CAPITAL INVESTMENTS BY PARTNERS AN AMOUNT OF RS. 12,30,750/- IN THE INCOME OF THE FIRM U/S 68 OF THE ACT. WHEREA S ALL THE PARTNERS HAVE CONFIRMED TO HAVE MADE THE CONTRIBUTI ON TOWARDS CAPITAL AND ARE ASSESSED TO INCOME TAX. THE LEARNED CIT(A) DID NOT CONSIDER OR ADJUDICATED ON THE WRITTEN SUBMISSI ONS AND DOCUMENTS FILED. THE INVESTMENTS BY PARTNERS OUGHT TO HAVE BEEN CONSIDERED IN THEIR HANDS. 3. THAT THE AO AND LEARNED CIT(A) WERE NOT JUSTIFIE D TO DISALLOW AN AMOUNT OF RS. 2,39,600/- U/S 40A(3) OF THE ACT. OUT ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 2 OF THE PURCHASE OF GRIT, BAJRI AND SAND FROM M/S LA L KUAN STONE CRUSHERS LTD. WHERE 40A(3) WAS NOT APPLICABLE IN VI EW OF GENUINENESS OF TRANSACTION AS WELL AS ADVANCES WERE MADE FROM WHERE DAILY SALES WERE ADJUSTED. WRITTEN SUBMISSION S FILED WERE NOT CONSIDERED OR ADJUDICATED BY THE LEARNED CIT(A) . 4. THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED TO CON FIRM THE DISALLOWANCES OF 20% EXPENSE OF RS. 1,08,273/- OUT OF TRANSPORT PAYMENTS AND RS. 37,048/- OUT OF THE ESTABLISHMENT CHARGES ETC. THE DETAILS FILED WERE NOT AT ALL CONSIDERED. 5. THAT INTEREST TO PARTNERS OF RS. 1,47,710/- WAS AN ALLOWABLE DEDUCTION. 6. THAT THE APPELLATE ORDER ON THE WHOLE SKIPPED OV ER THE WRITTEN SUBMISSIONS AND DETAILS FILED DATED 30-10-0 8 AS WELL AS ON 14-01-09. 3. BRIEF FACTS ARE THAT THE ASSESSEE IS A PARTNERSH IP FIRM, CONSTITUTED ON 1- 4-2004. THE BUSINESS OF SUPPLY OF BUILDING MATERIAL OF THE FIRM COULD BE STARTED IN DECEMBER 2004; PRIOR TO THIS DATE, THE A SSESSEE HAD NOT CARRIED OUT ANY BUSINESS. THE AO FOUND THAT PARTNERS OF THE ASS ESSEE FIRM HAD CONTRIBUTED THEIR CAPITAL IN THE ACCOUNTS IN CASH. THE ASSESSEE ALONG WITH WRITTEN SUBMISSIONS FILED RELEVANT DOCUMENTS I.E. C ONFIRMATIONS AND STATEMENTS OF ALL THE MALE PARTNERS AND AFFIDAVITS OF FEMALE PARTNERS WERE PRODUCED BEFORE AO. THE AO, HOWEVER, MADE ADDITION OF RS. 12,30,750/- IN THE HANDS OF THE FIRM AS CAPITAL INTRODUCED BY PART NERS BEING FIRMS UNDISCLOSED INCOME. IN FIRST APPEAL, THE CIT(A) CO NFIRMED THE ADDITION. ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 3 4. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT A SSESSEE HAS BEEN RECOGNIZED AS GENUINE PARTNERSHIP FIRM. THIS CLEAR LY IMPLIES THAT THE FIRM AND ITS PARTNERS ARE GENUINE, IDENTITY OF PARTNERS AND TRANSACTIONS ARE NOT IN QUESTION. IT HAS BEEN ASSUMED THAT THE PARTNERS CA PITAL REPRESENTS UNEXPLAINED INCOME OF THE FIRM. ALL THE MALE PARTNE RS OF THE ASSESSEE FIRM WERE PRODUCED BEFORE AO, WHOSE STATEMENTS WERE RECO RDED AND LADY PARTNERS FILED AFFIDAVITS, WHICH ARE UNCONTROVERTED . THE PARTNERS CONTRIBUTED CAPITAL OF RS. 12,00,534/- TILL 30-11-2004 I.E. BEF ORE BUSINESS OF THE FIRM AND THE BALANCE CAPITAL WAS CONTRIBUTED THEREAFTER. REL IANCE IS PLACED ON THE RATIO OF DECISION OF HONBLE ALLAHABAD HIGH COURT I N THE CASE OF INDIA RICE MILL VS. CIT 218 ITR 508 (ALL.), HOLDING THAT WHEN THE PARTNERS ARE IDENTIFIABLE THE ONUS WAS ON THE PARTNER TO EXPLAIN THE SOURCE OF CONTRIBUTION OF CAPITAL AND THE ADDITION CANNOT BE MADE IN THE H ANDS OF THE ASSESSEE FIRM. FURTHER RELIANCE IS PLACED ON THE RATIO OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS (P) LTD. 216 CTR (SC) 195 FOR THE PROPOSITION THAT THAT THE AMOUNT ADVANCED AS SHARE APPLICATION BY THE SHARE HOLDERS CANNOT BE ADDED IN THE HANDS OF THE COMPANY. IT IS PLEADED THAT THE SAME ANALOGY APPLIES TO ASSESSEE FIRMS CASE INASMUCH A S THE PARTNERS BEING IDENTIFIED AND THEIR RELATIONSHIP WITH THE FIRM BEI NG GENUINE AND ACCEPTED BY THE AO, THE CAPITAL CONTRIBUTED AND CONFIRMED BY TH EM CANNOT BE ADDED IN ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 4 THE HANDS OF THE FIRM. ON THIS LEGAL PROPOSITION IT IS PLEADED THAT THE ADDITION CANNOT BE MADE IN THE HANDS OF THE ASSESSEE. 4.1. ON MERITS IT IS CONTENDED THAT BEFORE THE STA RT OF BUSINESS OF THE FIRM IT CANNOT BE HELD THAT IT EARNED ANY UNDISCLOSED IN COME. THE BUSINESS ACTIVITIES OF FIRM HAVING COMMENCED FROM DECEMBER 2 004, THE CAPITAL CONTRIBUTED BY THE PARTNERS TILL 30-11-2004 WHICH A MOUNT TO RS. 12,00,534/- CANNOT BE ADDED IN THE HANDS OF THE FIRM. LEARNED C OUNSEL REFERRED TO PAGE NO. 69 OF THE PAPER BOOK, WHICH IS STATED TO BE FIR ST ORDER OF TRG INDUSTRIES P. LTD. DATED 25-1-2005 FOR SUPPLY OF COARSE SAND. 4.2. IT IS FURTHER PLEADED THAT RAJEEV SINGHAL IS A SSESSED TO INCOME-TAX AND WAS IN THE BUSINESS OF BUILDING MATERIAL SINCE PAST MANY YEARS. IT CANNOT BE ASSUMED THAT HE HAD NO MEANS TO CONTRIBUTE CAPITAL. RELIANCE IS PLACED ON PAPER BOOK PAGES 11 TO 26 WHICH ARE COPIES OF RETUR NS, COMPUTATION OF INCOME RIGHT FROM A.Y. 1999-2000 ONWARDS, WHICH CL EARLY SHOW THAT SHRI RAJEEV SINGHAL WAS ALREADY IN THE BUSINESS, WORKIN G AS A CONTRACTOR. THE AMOUNT OF CAPITAL CONTRIBUTED BY HIM CANNOT BE TREA TED AS UNEXPLAINED INCOME OF THE FIRM, AS HIS SOURCES ARE ON INCOME-T AX RECORD. . IT IS PLEADED THAT ASSESSEE HAVING PRODUCED ALL THE MALE MEMBERS BEFORE THE AO, WHO WERE EXAMINED AND STATEMENTS WERE RECORDED, NO ADDI TION CAN BE MADE IN THE CASE OF THE ASSESSEE FIRM. ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 5 4.3. APROPOS THE THREE LADY PARTNERS I.E. MANJU KAN SAL, SMT. KAMLESH AND SMT. LATA IT IS PLEADED THAT THEY HAD FURNISHED CO NFIRMATORY AFFIDAVITS WHICH HAVE NOT BEEN CONTROVERTED. ON MERITS ALSO, THE ASS ESSEE DISCHARGED ITS ONUS AND SOURCE OF SOURCE CANNOT BE EXAMINED AND ADDED I N THE ASSESSEES HANDS. 4.4. LEARNED COUNSEL FURTHER RELIED ON THE ORDER OF THE ITAT DELHI BENCH D DATED 16-12-2008 IN THE CASE OF M/S KOHLI CONST RUCTION CO. RENDERED IN ITA NO. 4432/DEL/07 FOR A.Y. 2002-03, HOLDING AS UN DER: 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL PLACED ON RECORD AND THE JUDGMENTS RELIED UPON. WE ARE INCLINED TO ACCEPT THE PLEA OF LEARNED COUNSEL FOR THE ASSESSEE THAT IN VIEW OF HONBLE SUPREME COURT JUDGMENTS IN THE CASE OF LOVELY EXPORTS (P) LTD. AND M/S DIVINE LEASING AND FINANCE LTD. (SUPRA), THE PARAMETERS FOR ADDITION U/S 68 HA VE UNDERGONE PARADIGM SHIFT AND IT HAS BEEN NOW LAID DOWN THAT W HEN THE CREDITORS ARE KNOWN, THE ISSUE ABOUT THE CREDIT ADD ITION U/S 68 HAS TO BE EXAMINED IN THE HANDS OF SUCH CREDITOR. IN VIEW THEREOF, WE HOLD THAT THE ISSUE ABOUT INTRODUCTION OF CAPITAL OF RS. 2 LACS ADDED IN THE HANDS OF THE FIRM SHOULD BE EXAMINED IN THE HANDS OF PARTNERS SHRI HARPREET SINGH KOHLI AND THE SAME IS TO BE DELETED IN THE HANDS OF PARTNERSHIP FIRM. THE AO MAY SEEK THE APPROPRIATE COURSE OF ACTION ACCORDINGLY. 4.5. COMING TO ADDITION U/S 40A(3), REFERENCE IS MA DE TO PAPER BOOK PAGE 68, WHICH IS A LETTER ISSUED BY LALKUAN STONE CRUSH ERS LTD. (LSC) WHICH STATES THE ADVANCE PAYMENTS TO BE BASIS OF PURCHASE OF SAND AND STONE GRITS TO THE FOLLOWING EFFECT: DURING THE FINANCIAL YEAR 2004/05, WE HAVE SOLD YO U SAND AND STONE GRITS ON THE DIFFERENT DATES WHICH WERE TRANS PORTED BY TRUCKS AND THE SALE COST EXCLUDING FREIGHT AMOUNT W AS DEBITED TO ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 6 YOUR ACCOUNT DAILY. WE HAVE ACCEPTED FROM YOU CASH PAYMENT IN ADVANCE WHICH WAS ADJUSTED AGAINST THE SUPPLIES MADE TO YOU. YOU WERE ALREADY INFORMED THAT WE ACCEPT ONLY CASH PAYMENT AND HUNDRED PERCENT IN ADVANCE FOR THE SUPP LIES FROM OUR NEW AND UNKNOWN CUSTOMERS. THE SALES WERE ADJUS TED TOWARDS THE ADVANCE SO RECEIVED FROM YOU. 4.6. LEARNED COUNSEL CONTENDS THAT, BEING A SUB CON TRACTOR THE ASSESSEE HAD TO FOLLOW THE AGREEMENT WITH LSC THAT THE MATERIAL WILL BE SUPPLIED BY THEM AS PER DIRECTIONS OF M/S TRG INDUSTRIES (P) LT D. AGAINST LOAN ADVANCES. THE ASSESSEE HAD FURNISHED THE LIST OF DAILY PURCHA SES FROM M/S LAL KUAN STONE CRUSHER WHICH ARE FAR LESS THAN 20000/- IN T RIP BASIS IN THE VICINITY OF RS. 3000/- TO RS. 6,000/- EACH TRIP. 4.7. LSC DID NOT ACCEPT ANY CHEQUE/ DRAFT AND THE A PPELLANT HAD NO ACCOUNT IN HALDWANI AND THEY INSISTED FOR ADVANCE CASH DEPO SITS. HENCE THE APPELLANT HAD GIVEN ADVANCES TO LSC WITH THE STIPULATION THA T EACH SUPPLY WILL BE ADJUSTED AGAINST THE ADVANCE GIVEN. THE ASSESSEE OU T OF MONEYS RECEIVED FROM TRG INDUSTRIES, WHICH WAS PAID TO LSC AS CASH ADVANCE AGAINST PURCHASES TO BE EFFECTED. SECTION 40A(3) PROVIDES AS UNDER: 40A(3) WHERE THE ASSESSEE IN COURSE ANY EXPENDITUR E IN RESPECT OF WHICH PAYMENT IS MADE, AFTER SUCH DATE A S MAY BE SPECIFIED IN THIS BEHALF BY THE CENTRAL GOVERNMENT BY NOTIFICATION IN THE OFFICIAL GAZETTE IN A SUM EXCEE DING TWENTY THOUSAND RUPEES OTHERWISE THAN BY A CROSSED CHEQUES DRAWN ON A BANK OR BY A CROSSED BANK DRAFTS TWENTY PERCENT O F SUCH EXPENDITURE SHALL NOT BE ALLOWED AS DEDUCTION. ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 7 PROVIDED FURTHER THAT NO DISALLOWANCE UNDER THIS S UB-SECTION SHALL BE MADE . IN SUCH CASES AND UNDER SUCH CIRCU MSTANCES AS MAY BE PRESCRIBED HAVING REGARD TO THE NATURE AN D EXTENT OF BANKING FACILITIES AVAILABLE CONSIDERATION OF BUSIN ESS EXPEDIENCY AND OTHER RELEVANT FACTORS. 4.8. LOOKING TO THE PROVISION IT IS CLEAR THAT THE APPELLANT IS NOT COVERED UNDER THIS PROVISION AS THE WORD WHERE THE ASSESSE E INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS MADE: CLEARLY INDICA TE THE PAYMENT TO BE MADE AT THE TIME OF PURCHASES SHOULD BE LESS THAN R S. 20,000/-, IT DOES NOT COVER CASES WHERE THE ADVANCES HAVE BEEN GIVEN. LSC STATEMENTS OF ACCOUNTS CLEARLY REVEAL THAT ASSESSEE HAD DEPOSITED CASH ADVANCES, WHICH ARE NOT PURCHASES AGAINST WHICH EACH OF SUPPLY/ PURCHAS E IS ADJUSTED WHICH IS MUCH LESS THAN RS. 20,000/- FOR A TRIP. RELIANCE I S PLACED ON: - CIT KOTHARI SANITATION AND TILES (P) LTD. 2006 282 ITR 117 (MAD); 202 CTR 277; IT WAS HELD THAT THE WORD USED ARE IN A SUM WHICH H AS BEEN USED IN SINGULAR TERM AND HENCE IRRESPECTIVE OF ANY NUMBER OF TRANSACTIONS WHERE THE AMOUNTS DOES NOT EXCEED RS. 20000/- THE R IGORS OF S. 40A(3) WILL NOT APPLY. - PUNJAB & HARYANA HIGH COURT IN CIT VS. BALKISHAN JA GDISH CHAND 213 ITR 174 HAS HELD THAT WHERE VARIOUS CASH PAYMEN TS ARE MADE TO ONE PARTY IN SINGLE DAY. SUCH PAYMENTS WERE NOT R EQUIRED TO BE CLUBBED AND TREATED AS ONE CASH PAYMENTS AND ARE NO T VIOLATIVE OF SEC. 40A(3); - WALFORD TRANSPORT EASTERN INDIA VS. CIT (1999) 240 ITR 902; HONBLE GAUHATI HIGH COURT OBSERVED AS UNDER: ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 8 FROM PERUSAL OF THE DECISIONS OF DIFFERENT HIGH CO URTS REFERRED TO ABOVE IT CLEARLY EMERGES THAT PURPOSE OF S. 40A( 3) OF THE ACT IS NOT TO PENALIZE THE ASSESSEE FOR MAKING CASH PAY MENTS OF AN AMOUNT OF RS. 250/- OR ABOVE. THE PURPOSE ONLY IS P REVENTIVE AND TO CHECK EVASION OF TAX AND FLOW OF UNACCOUNTED MONEY OR TO CHECK TRANSACTIONS WHICH ARE NOT GENUINE AND MA Y BE PUT AS CAMOUFLAGE TO EVADE TAX BY SHOWING FICTITIOUS OR FA LSE TRANSACTIONS. THE PROVISION IS OBVIOUSLY DESIGNED TO CHECK TAX EV ASION BY CLAIMS OF CASH EXPENDITURE WHICH HAS NOT BEEN INCURRED. - IN BOARD CIRCULAR NO. 220/31.5.77 (1977) 108 ITR 8 (STAT.), ILLUSTRATED THE CIRCUMSTANCES IN WHICH RULE 6DD(I) LIBERALIZED SO AS TO AVOID DISALLOWANCE OF SUCH PAYMENTS IN GENUINE CASES AND WHERE THE PAYMENTS HAVE NOT BEEN DOUBTED. - CIT VS. ATTAR SIONGH SONS (1992) 194 ITR 80 (P&H); - CIT VS. RAM ARYA SHYAM NARAIN (1991) 189 ITR 470 (A LL.); - JANTA RICE MILL VS. ITO (2007) TAX REFERENCER 98. 4.9. THE TRANSACTIONS OF ADVANCES & ADJUSTMENTS OF EACH TRIP BEING UNDISPUTED AND EACH TRANSACTION BEING FOR LES THAN 20000/- PER DAY; THE DISALLOWANCE OF 20% OF SUCH ADVANCES OUGHT TO BE DE LETED. 40A(3) BEING NOT APPLICABLE IN PRESENT CIRCUMSTANCES. 4.10. ADHOC DISALLOWANCE OF RS. 108273/- 20% OF THE TRANSPORT EXPENSES OF RS. 541365/-. 4.11. ADHOC DISALLOWANCE OF RS. 37048/- 20% OF THE RS. 18 5243/-; 4.11.1. THE ASSESSEE CONTENDS THAT BOOKS OF ACCOUNT S ARE MAINTAINED; IT HAD TO PAY EXPENSES RELATING TO TRANSPORT FROM HALD WANI TO SHAHJAHANPUR; A ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 9 LIST OF TRUCKS OPERATED EVERYDAY PARTICULARLY FROM HALDWANI TO SHAHJAHANPUR IS FILED & THE PAYMENTS WERE MADE TO TRANSPORTERS WHICH COMES TO 12.25% OF THE TOTAL SUPPLIES 4412821/-. 4.12. PAYMENT TO TRANSPORTER 541365 PERCENTAGE 12.2 5%: THE TOTAL EXPENSES OF RS. 185243/- RELATE TO AUDIT FEE, STAFF FOOD, MISC. EXP., OFFICE EXP., SALARY TO STAFF AND TELEPHONE EXP, AS WELL AS TRAVE LING & CONVEYANCE. IN SUCH TYPE OF BUSINESS WHERE THE PURCHASES ARE TO BE TRAN SPORTED TO SHAHJAHANPUR, SUCH EXPENSES ARE NOMINAL & THERE WAS NO OCCASION T O DISALLOW AD HOC 20% OUT OF THE EXP. AS THE TOTAL SUPPLIES ARE AS SUB CO NTRACTOR AMOUNTING TO RS. 4412821/-. 4.13. THE PAYMENTS ARE QUITE REASONABLE CONSIDERING THE BULK OF WORK CONDUCTED DURING THE YEAR. THE ASSESSEE HAS DISCLOS ED THE FOLLOWING PROFIT OUT OF THE SUPPLIES OF RS. 4412821/-. NET PROFIT AS PER PROFIT LOSS A/C 18720/- SALARY PAID TO PARTNERS 83700/- INTEREST TO PARTNERS 180000/- TOTAL 282420 4.13.1. THE PERCENTAGE OF PROFIT THUS COMES TO 6. 40%. PROFIT PROVIDED UNDER THE ACT FOR THE SUPPLY WORK BEING FOR THE CO NTRACT WORK U/S 44AD IS PRESCRIBED @ 8%. THE ASSESSEE BEING A SUB CONTRACT OR, THE MARGIN DISCLOSED I.E. 6.40% IS QUITE REASONABLE AND THERE WAS NO CHA NCE OR OCCASION TO ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 10 DISALLOW THE EXPENDITURE EVEN ON MERITS. THE AD HOC DISALLOWANCE SHOULD BE DELETED. 4.14. DISALLOWANCE OF INTEREST OF RS. 147710 OUT OF RS. 180000 PAID TO THE PARTNERS U/S 40(B)(IV) IS CONSEQUENTIAL IN NATURE. 5. LEARNED DR ON THE OTHER HAND RELIES ON THE ORDER OF LOWER AUTHORITIES AND CONTENDS THAT IN THE CASE OF INDIA RICE MILL (S UPRA), THE CAPITAL CONTRIBUTION WAS MADE BY THE PARTNERS BEFORE IT STA RTED THE BUSINESS, WHEREAS IN ASSESSEES CASE PARTLY SAME HAS BEEN DEPOSITED A FTER THE BUSINESS WAS STARTED. FOR OTHER DISALLOWANCES, RELIANCE IS PLACE D ON THE ORDER OF LOWER AUTHORITIES. 6. LEARNED COUNSEL FOR THE ASSESSEE IN REJOINDER CO NTENDS THAT ASSESSEE BEFORE LOWER AUTHORITIES GAVE SPECIFIC DETAILS THAT TILL DECEMBER 2004 THE ASSESSEES BUSINESS DID NOT START AND THE CAPITAL C ONTRIBUTED TO THE EXTANT OF RS. 12,00,534/- TILL THAT DATE SQUARELY FALLS IN TH E RATIO OF DECISION OF HONBLE ALLAHABAD HIGH COURT AND CANNOT BE ADDED. 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN ASSESSEES CASE IT HAS NOT BEEN DISPUT ED THAT THE ASSESSEE FIRM THOUGH CONSTITUTED ON 1-4-2004, STARTED ITS BUSINES S IN DECEMBER 2004 AND AS PER DETAILS FILED BY ASSESSEE, THE CAPITAL CONTR IBUTED BY PARTNERS TILL 30-11- 2004 WAS RS. 12,00,534/-. BESIDES, ONE OF THE MAIN PARTNERS SHRI RAJEEV ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 11 SINGHAL IS AN EXISTING ASSESSEE WHOSE INCOME-TAX RE CORD FOR A.Y. 1999-2000 ONWARDS WAS FILED BY THE ASSESSEE. THERE IS NO DISP UTE ABOUT THE IDENTITY OF THE PARTNERS AND THE CASH TRANSACTIONS; AMOUNT HAS BEEN ADDED HOLDING THAT THE ASSESSEE COULD NOT ESTABLISH THE CREDITWORTHINE SS OF THE PARTNERS AS MOST OF THEM ARE AGRICULTURISTS AND THEIR STATEMENT WER E UNRELIABLE. 7.1. LEARNED COUNSEL HAS MADE A FIRST POINT THAT IN CASE OF THE PARTNERSHIP FIRM, THE CAPITAL CONTRIBUTION OF PARTNERS CANNOT B E ADDED IN THE HANDS OF THE FIRM BUT CAN BE EXAMINED SO IN THE CASE OF THE PART NERS. FOR THIS PURPOSE, THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CAS E OF INDIA RICE MILL (SUPRA) IS RELIED ON WHEREIN IT WAS HELD THAT THE C APITAL CONTRIBUTED BY PARTNERS BEFORE THE COMMENCEMENT OF FIRMS BUSINESS CANNOT BE ADDED IN THE HANDS OF THE FIRM. 7.2. FURTHER RELIANCE IS PLACED ON THE ORDER OF THE ITAT IN THE CASE OF M/S KOHLI CONSTRUCTION CO. (SUPRA), RELEVANT OBSERVATIO N HAS BEEN REPRODUCED IN PARA 4.4 ABOVE. 7.3. LOOKING FROM ANY ANGLE, IF WE APPLY THE RATIO OF INDIA RICE MILL (SUPRA), THEN THE CAPITAL OF RS. 1200534/- IS CONTR IBUTED BEFORE THE COMMENCEMENT OF BUSINESS AND APPLYING THE RATIO OF DECISION IN THE CASE OF KOHLI CONSTRUCTION CO. (SUPRA), WHEN THE IDENTITY O F THE PARTNERS IS DISCLOSED AND THE FIRM IS HELD TO BE GENUINE THEN THE CAPITA L CONTRIBUTED BY THE ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 12 PARTNERS CANNOT BE ADDED IN THE HANDS OF THE FIRM. THE ISSUE ABOUT PARTNERS CAPITAL NOT TO BE ADDED IN THE HANDS OF THE FIRM HA S BEEN DECIDED BY HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. RAMESHWAR DASS SURESH PAL CHEEKA (2007) 163 TAXMAN 270 (P&H), WHER EIN THE HONBLE COURT, AFTER ANALYZING VARIOUS CASE LAWS HAS HELD A S UNDER: 5. WE ARE ALSO IN AGREEMENT WITH THE VIEW TAKEN BY THE TRIBUNAL THAT NO CASE WAS MADE OUT FOR ADDITION TO THE INCOME OF THE FIRM EVEN IF DEPOSITS MADE WITH THE FIRM BY THE PARTNERS WERE UNEXPLAINED INCOME OF THE PARTNERS. THIS VIEW HAS BEEN TAKEN BY US IN OUR RECENT ORDER PASSED ON 6-11-2006 IN CIT V. METAL & METALS OF INDIA [IT APPEAL NO. 370 OF 2006] , WHEREIN IT WAS OBSERVED AS UNDER: IN THE PRESENT CASE, THE FIRM HAS GIVEN EXPLANATIO N ABOUT THE SOURCE NAMELY SURESH BHANDARI, PARTNER, WHO HIMSELF IS AN ASSESSEE. THE SAID PARTNER HAS ADMITTED HAVING MADE DEPOSIT WITH THE FIRM. THUS AS FAR AS THE FIRM IS CONCERNED, EVEN IF THE GIFT CLAIMED TO HAVE BEEN RECEIVED BY SURESH BHANDARI IS TO BE REJECTED, THE SAID SURESH BHANDARI MAY BE LIABLE TO BE TAXED BY TREATING THE SAID AMOUNT AS UNDISCLOSED INCOME, BUT THE FIRM CANNOT BE SUBJECTED TO TAX ON THAT GROUND. 7.4. IF WE LOOK AT FROM THE ANGLE OF TAXABILITY, TH EN THE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF RAMESHWAR DASS SURESH PAL CHEEKA (SUPRA) GUIDES THE WAY TO THE EFF ECT THAT WHEN THE FIRM IS GENUINE AND PARTNERS ARE IDENTIFIED, THEIR CAPITAL CONTRIBUTION CANNOT BE ADDED IN THE HANDS OF THE FIRM, THE SAME THOUGH CAN BE EXAMINED IN THE HANDS OF THE PARTNERS. ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 13 7.4.1. IF WE LOOK FROM INDIA RICE MILL POINT OF VIE W, IN THAT CASE THE CAPITAL OF RS. 1200534/- IS INTRODUCED PRIOR TO THE COMMENC EMENT OF BUSINESS AND THE CAPACITY OF MR. RAJEEV SINGHAL CANNOT BE QUESTI ONED AS HE IS REGULARLY ASSESSED TO TAX SINCE SO MANY YEARS. IN VIEW OF THE SE OBSERVATIONS, RELYING ON HONBLE PUNJAB & HARYANA HIGH COURT JUDGMENT IN RAMESHWAR DASS SURESH PAL CHEEKA (SUPRA), WE HOLD THAT THE PARTNER S CAPITAL CONTRIBUTION CANNOT BE ADDED IN THE HANDS OF THE FIRM WHICH, IF THE AO DESIRES, MAY INVESTIGATE IN THE HANDS OF PARTNERS IN ACCORDANCE WITH LAW. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 7.5. APROPOS SECOND GROUND, AS THE FACTS EMERGE FRO M THE COPY OF ACCOUNT OF THE ASSESSEE IN THE BOOKS OF LSC, THE ASSESSEE F ROM TIME TO TIME MADE LUMP SUM ADVANCE CASH DEPOSITS E.G. ON 10-12-2004 A N AMOUNT OF RS. 1,50,000/- WAS DEPOSITED AS ADVANCE; THE SUBSEQUENT SALES OF MATERIAL AMOUNT TO RS. 5940/-; RS. 5082/-; AND RS. 5482/- A ND SO ON, CLEARLY INDICATE THAT EACH SALE EFFECTED WAS FOR LESS THAN RS. 20,0 00/- AND WAS IN THE RANGE OF NOT EXCEEDING ABOUT RS. 6,000/-. IN VIEW OF THESE F ACTS IT CANNOT BE HELD THAT EACH AND EVERY PAYMENT MADE BY ASSESSEE WAS ABOVE R S. 20,000/- AND IN ANY CASE THERE IS NO PAYMENT AS SUCH. THE PAYMENT M ADE IN LUMP SUM IS BY WAY OF ADVANCES. IN VIEW OF THESE FACTS, EACH PURC HASE BEING LESS THAN RS. 20,000/- THE ADVANCE PAYMENTS MADE BY ASSESSEE CANN OT BE HELD CASH PURCHASES AND VIOLATIVE OF SEC. 40A(3). IN THAT CAS E LSC MAY HAVE BEEN QUESTIONED ABOUT CASH DEPOSITS IN THEIR CASE. IN V IEW OF THESE FACTS, WE ARE INCLINED TO DELETE THE ADDITIONS MADE U/S 40A(3). 7.6. COMING TO THE AD HOC DISALLOWANCE OF 20% EXPEN SES OUT OF TRANSPORT ESTABLISHMENT CHARGES, ENDS OF JUSTICE WILL BE MET IF THE ADDITION IS REDUCED TO 10%, KEEPING IN MIND THAT ASSESSEES NET PROFIT COMES TO 6.34% THE PRESUMPTIVE RATE OF TAXATION IN THE HANDS OF A CONT RACTOR IS HELD AT 8%. ITA NO. 1344/DEL/09 M/S RAJEEV SINGHAL 14 ASSESSEE BEING SUB-CONTRACTOR, IF WE REDUCE IT BY 2%, PRESUMABLY EARNED BY MAIN PARTNER, THE BALANCE COMES TO 6%, ON ESTIMAT E BASIS ALSO ASSESSEES BOOK RESULTS ARE REASONABLE AND COMMENSURATE. 7.7. COMING TO THE LAST GROUND ABOUT ALLOWABILITY O F INTEREST U/S 40A(2)(B), WE HAVE HELD THAT THE CAPITAL CONTRIBUTED BY PARTNE RS CANNOT BE ADDED IN THE HANDS OF THE FIRM. CONSEQUENTLY THE INTEREST PAID B Y THE ASSESSEE ACCORDING TO ITS TERMS OF PARTNERSHIP DEED CANNOT BE DISALLOW ED. THEREFORE, THIS ADDITION IS DELETED. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON 13-05-2011. SD/- SD/- ( B.C. MEENA ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13-05-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR